Fiscal responsiblity and the Kasich budget

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Sometimes I can spend a little too much time digging through budget details, line items, and policy questions and I can start to lose the forest for the trees. So please allow me here to spread out a little and see if we can’t have a little macroeconomics discussion about the Kasich budget and the fiscal impacts of it. I have been thinking about this a lot today mostly due in part to the report that our friends over at Innovation Ohio. The report looks at the line items in the budget that directly fund personnel in primary and secondary education, higher education, local governments, and state personnel and this is what they found:

…if the legislature enacts all the cuts contained in the Governor’s proposed budget, the 51,000 jobs we stand to lose is more than double the 22,000 jobs Ohio has gained since Gov. Kasich took office. The effect could be catastrophic to Ohio’s still-fragile economic recovery.

What is important to remember is that this report only looks at the jobs that would be directly lost due to these cuts in funding. They don’t even attempt to calculate the indirect job losses that will occur due to the loss of wages to these workers. Besides the loss of 51,000 jobs the impact to the whole economy will without a doubt be much larger than what this report is forecasting.

Over at the Felix Salmon blog there was a very small nugget of information that has given me a lot of thought as well. What Salmon tried to argue is that the unemployment rate is not only a short term economic concern but also a longer term fiscal concern.

And more generally it’s an important reminder that unemployment is a fiscal issue, and that anybody who wants to take the budget deficit seriously should put a lot of effort into increasing the number of Americans with jobs.

Or as he pointed out in the same piece:

Right now, he said, about 56% of Americans over the age of 16 are gainfully employed. If that percentage were to rise to 64%, Fuss reckons, then the budget deficit disappears entirely. We’re not going to get there. But theoretically it’s possible, if the unemployment rate comes down and if people retire later, as is happening in Japan.

How does this play out in Ohio? When an Ohioan losses their job and they are forced to rely upon society’s safety net that puts greater strain on government’s ability to pay for those needed benefits, like unemployment and health care. Not to mention the fact that when they are unemployed they are not paying into retirement plans which increases their impact on future budgets because they will be forced to use services from the government, specifically, health care.

All the cost cutting measures that are included in the Kasich budget, and you can count SB 5 in this, are working against the exact problem Kasich is looking to solve. To prevent situations that we are in right now, an $8 billion budget gap, what you shouldn’t do is start firing people first because that will only push up the demand now, and in the future, for those same services that you are currently trying to find new ways to fund. The short term gain is that you balance your budget, but in the medium to longer term this decision will have just as large negative effect when the unemployment rate stays at too high of a level due to these measures.

2 Comments

your remarks about gainfully employed need to be emphasized. I don’t consider most government jobs as gainfully employed. I consider private especially manufacturing jobs as gainful employment. government jobs at at best neutral on a budget but usually net negative on a budget. 1 dollar in equals 70 cents return.

Trust me, if you worked a government job and it paid you a wage sufficient to support your family – and then you LOST that job, your attitude as to whether you were gainfully employed would change. Anyone who works for a living, regardless of their employer, is gainfully employed. Each pays taxes. Each puts money back into the economy.

However, government employees provide services – without the requirement that a profit be gained at the expense of either the service level provided or the bottom line. It could be argued that anything and everything could be privatized, yet no private entity would find a loss or no profit tolerable. Yet the need for services remain.